Tips for financing a franchise purchase
Some of the great success stories have begun with an investment in a franchise. But if you’re thinking about becoming a franchisee, there are a couple of important things to consider.
Franchise something you enjoy
Firstly, if you’re going to run the business yourself (rather than just investing), make sure you get into an industry aligned with your own interests and expertise.
For example, if you don’t like cooking, cleaning and dealing with people face to face, a restaurant, cafe or juice bar is probably not for you. But if health and sport are big parts of your world, a gym or personal training franchise might be.
So think about what you love – be it cars, travel, gardening, real estate, animals, etc – and make your passion your business.
Carefully consider how you’ll pay for the business
Secondly, if you need money to finance your franchise purchase, there are a number of ways to go about it. Whether you can break a deal or not often rests with how you present yourself.
Being open, clear and well organised will ensure the right decisions are made in relation to the loans you apply for, investors you approach and even what you decide to do with your own capital.
Getting a loan for a franchise means being prepared
If you’re applying for a loan, it’s always better to have approval from the Franchisor in advance. This demonstrates that you’re serious about the venture, and have already researched and made commitments to where the money will go.
Loan applications also look better with more capital and a little debt, rather than no debt and less capital, so don’t exhaust your liquidity by paying off debts before you fill in the application.
In many cases, franchise finance would be a secured loan against your property.
Be upfront with people who might invest in your franchise
Investors, most of the time aka friends and family, will also want to know that you have approval as the franchisee to feel confident their money will make its way back to them without problems and within an estimated period of time.
Always be totally honest and up front. Explain everything in detail (or better yet have a business plan) and answer any questions they might have. It’s amazing how many times withholding details has jeopardised relationships between investors and investees at critical times.
The last thing you want is bad blood with family or friends on top of a business stress.
Choose the right financing for your franchise equipment
As with any business venture, tread economically with cash at the beginning. If you’re successful in buying the franchise, make sure you get the right finance plan early for your equipment needs so you don’t end up locked in to something you can’t afford.
Buying a franchise can be a great way to make a living, but it’s important to look before you leap. And when you do finally jump in, ensure you do it with a professional plan in place.
If you need some help and advice on financing your franchise and equipment we’re here to help.